Government must 'nudge' people to make the most of smart meters

Synopsis

As far as such a thing is possible, this is an exciting time for energy efficiency.

The launch of the Green Deal, the new Energy Company Obligation, debates about building regulations and potential new market-incentives for electricity demand reduction in the Energy Bill all show that policymakers are getting serious about reducing demand and improving the efficiency of the economy.

One major upcoming shift in the UK's energy system that has not received much attention is smart meters. These are devices that will, among other things, allow people to see in real-time which activities gobble up the most energy.

There are major risks with the roll-out of 53 million gas and electricity meters to every home in the UK. Firstly, the costs are high, around £11bn. This is partly driven by the speed of the roll-out, which will see hundreds of thousands of meters installed every week at its peak. There are also concerns about what happens to the data that is collected. Government must be vigilant about both privacy and overall costs.

However, there are also huge opportunities for smart meters to help change how people use energy at home and help households stop wasting energy. But simply installing the meters will not, by itself, lead to major energy savings. The changes need to be supported with policy.

In the past, energy efficiency policy has rightly focused on installing new bits of kit, like loft insulation. It has been less comfortable with measures that try and change how people use energy. Partly, it has been difficult to prove whether behaviour change programmes, to use the jargon, deliver real, sustained savings and crucially, how much they cost.

There are fascinating innovations in behavioural economics that allow us to understand how using nudges, peer pressure and clearer information can change how much energy people use, without damaging their quality of life.

Our research has found that, potentially, such behavioural schemes can be more cost-effective than energy efficiency schemes, and a much cheaper way of cutting carbon emissions than low carbon generation, like nuclear and wind farms.

The next test is whether these schemes can deliver at significant scale and whether such savings can lead to sustained change in people's habits. Smart meters should make it easier to both help households find out where they are wasting energy and prove that real savings have been made.

The Government is starting some excellent work in this area, both through the Behavioural Insights Team and DECC's new Energy Demand Research Centres. But it could do more.

Our new report, Smarter, Greener, Cheaper, argues that new pilots that test ways of changing behaviour should also be allowed to compete for subsidy under the Energy Company Obligation. This will allow the Government to build up an even broader evidence base of whether energy change programmes work and are cost-effective. If they prove successful, they should be rolled out more widely.

We also argue other policy changes need to be looked at to make sure energy efficiency policy is more joined up and the benefits of smart meters are not squandered.

Firstly, the Government and Ofgem must review moves to limit the number of tariffs available to customers. Smart meters offer the potential for tariffs that reward people who do not use energy at peak times or who can switch off equipment at short notice. It is far from clear that such innovation will be possible under the proposed changes. Secondly, it must also allow innovation in wider energy efficiency policy. That means testing a new Energy Efficiency Feed-in-Tariff, as proposed in the current consultation (and not any clumsy system proposed through the unnecessary Capacity Mechanism).

Finally, the Government must work harder to articulate how all these policy strands fit together, including national advertising and gaining civil society support for smart meters. This means selling a clear message that Government is doing everything it can to help people cut down on energy use, but people can also take some simple actions themselves.

Only by weaving together these strands will Government convince people that its changes are delivering two simple things: helping keep energy bills as low as possible and cost-effective carbon savings.

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Households could reduce their gas and electricity bills by as much as £70 a year if they were allowed to compare each other’s energy bills. Smarter, Greener, Cheaper, shows there is evidence both internationally and in the UK that households cut the amount of energy they use when their energy use is compared to that of a more energy efficient neighbour.